DBRS Morningstar Downgrades Voyager Aviation to CC, UR - Negative on Debt Exchange Announcement

DBRS, Inc. (DBRS Morningstar) has downgraded the Long-Term Issuer Rating of Voyager Aviation Holdings, LLC (Voyager or the Company) to CC from B, while also downgrading the Company’s Long-Term Senior Debt rating to C from CCC (high). Concurrently, DBRS Morningstar also downgraded the Long-Term Issuer Rating of the Company’s wholly owned subsidiary, Voyager Finance Co. (VFC), to CC from B and its Long-Term Senior Debt rating to C from CCC (high). All ratings have been placed Under Review with Negative Implications. The Intrinsic Assessment (IA) for the Company is CC, while its Support Assessment is SA3. The Support Assessment for VFC is SA1.

KEY RATING CONSIDERATIONS
The rating action follows the Company’s announcement that it has reached an agreement with its existing shareholders and certain existing bondholders of its August 2021 Notes (the Notes) to restructure and recapitalize the Company (the Exchange Offer). In our view, Voyager has limited financial flexibility with no unencumbered aircraft as of September 30, 2020, no stand-by bank credit facilities, and aviation finance markets that are essentially closed for participants of smaller scale, including Voyager. As such, we view the Company as having very limited options to refinance the Notes, and that a default on the Notes would be likely without a successful debt exchange. Indeed, should the Exchange Offer not be accepted by 95% of the current holders of the Notes, the Company has stated that it would pursue either an in-court restructuring in Ireland or the U.S. We see this as providing a strong inducement for the existing bondholders to accept the Exchange Offer. Per DBRS Morningstar policy, such an exchange is considered a distressed debt exchange and the equivalent to a default on the Notes. As such, upon the successful execution of the Exchange Offer, DBRS Morningstar will lower Voyager’s Long-Term Issuer Rating to Selective Default (SD) reflecting that the Company is still performing on its secured debt obligations and operating as a going concern, while downgrading the Long-Term Senior Debt rating to “D” or Default.

Per the Exchange Offer, the existing shareholders of Voyager have agreed to relinquish their equity stake in the Company in exchange for $15 million of new 5-year 8.50% Senior Notes due 2026 (the New Notes). At September 30, 2020, Voyager had $382.9 million of tangible equity. Meanwhile, the bondholders of the Notes would tender their existing notes in exchange for all the equity in Voyager, $200 million of liquidation preference preferred equity, and $150 million of the New Notes. At September 30, 2020, there was approximately $415.3 million outstanding of the 8.50% August 2021 Notes. Following a successful execution of the Exchange Offer, Voyager will maintain its existing management agreement with Amedeo, but Amedeo will relinquish its 2.5% ownership in the Company for a pro-rata share of the $15 million in new Notes.

With the announcement of the Exchange Offer, Voyager indicated that all shareholders have agreed to the restructuring and recapitalization of the Company and that as of February 19, 2021, approximately 60% of the existing bondholders in the Notes have agreed to the plan. Over the coming weeks, Voyager will seek consent from the remaining holders of the Notes with a required majority of 95% necessary to successfully implement the Exchange Offer.

RATING DRIVERS
Given the Under Review with Negative Implications and the expectation of the debt exchange, an upgrade in the ratings is not likely in the near-term. Upon successful execution of the Exchange Offer, the Long-Term Issuer Rating will be lowered to Selective Default (SD), while the Long-Term Debt ratings will be downgraded to D. If the Exchange Offer is unsuccessful and the Company pursues a restructuring of the Notes in the courts, the ratings would likely be downgraded to D.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

Notes:
DBRS Morningstar notes that this Press Release was amended on February 24, 2021 to incorporate the disclosure regarding Coronavirus Disease.

All figures are in U.S. dollars unless otherwise noted.

The principal methodology is the Global Methodology for Rating Non-Bank Financial Institutions (September 29, 2020): https://www.dbrsmorningstar.com/research/367510/global-methodology-for-rating-non-bank-financial-institutions. Other applicable methodologies include the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (February 3, 2021): https://www.dbrsmorningstar.com/research/373262/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

The primary sources of information used for this rating include Company Documents and S&P Global Market Intelligence. DBRS Morningstar considers the information available to it for the purposes of providing this rating was of satisfactory quality.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

This rating is endorsed by DBRS Ratings Limited for use in the United Kingdom, and by DBRS Ratings GmbH for use in the European Union, respectively. The following additional regulatory disclosures apply to endorsed ratings:
Each of the principal methodologies employed in the analysis addressed one or more particular risks or aspects of the rating and were factored into the rating decision. Specifically, the “Global Methodology for Rating Non-Bank Financial Institutions” (September 24 2020) was utilized to evaluate the Issuer and “DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings” was used to assess ESG factors.

The last rating action on this issuer took place on December 21, 2020, when the ratings were downgraded.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are monitored.

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.

Lead Analyst: David Laterza, Senior Vice President, Head of U.S. Non-Bank FIG
Rating Committee Chair: Lisa Kwasnowski, Senior Vice President, Global FIG
Initial Rating Date: April 9, 2018

For more information on this credit or on this industry, visit www.dbrsmorningstar.com.

DBRS, Inc.
140 Broadway, 43rd Floor
New York, NY 10005 USA
Tel. +1 212 806-3277